Dunnachie v Kingston Upon Hull City Council

Compensation under the Employment Rights Act 1996 may include non-pecuniary loss caused by the circumstances or manner of an unfair dismissal. The statutory direction to award what is just and equitable, having regard to loss, does not confine compensation to financial loss. The loss must be real, caused by the dismissal and sufficiently proximate. A longstanding contrary interpretation was held wrong. An award assessed at large may be adequately explained by the factual findings and an indication of the applicable valuation scale.

An employment tribunal found that prolonged workplace bullying and management inaction had driven an environmental health officer to resign, amounting to constructive and unfair dismissal. It awarded economic compensation, subject to the statutory cap, and £10,000 for distress and other non-economic harm.

The Employment Appeal Tribunal remitted the economic compensation issue and disallowed the £10,000 award. The appeal concerned whether section 123 of the Employment Rights Act 1996 permitted compensation for non-pecuniary loss, in light of Norton Tool and the observations in Johnson v Unisys Ltd [2001] UKHL 13.

Disposition and statutory construction

By a majority, the appeal was allowed and the employment tribunal’s £10,000 award was restored. Lord Justice Sedley and Mr Justice Evans-Lombe held that section 123 of the Employment Rights Act 1996 permits compensation for non-pecuniary loss caused by the circumstances of an unfair dismissal. Lord Justice Brooke dissented on that issue.

1. Johnson v Unisys Ltd. Sedley LJ considered paragraph 55 of Johnson v Unisys Ltd [2001] UKHL 13 an integral step in Lord Hoffmann’s reasoning and therefore binding. Evans-Lombe J agreed with Brooke LJ that the passage was obiter and non-binding, but independently reached the same construction of section 123. Brooke LJ considered that the passage did not decide an issue raised before the House of Lords.
2. Meaning of section 123. The governing words are compensation that the tribunal considers just and equitable in all the circumstances. The reference to loss is a factor to which regard must be had, not an exclusive definition of the recoverable heads of compensation. Compensation remains subject to ordinary principles of causation and remoteness.
3. Norton Tool. Norton Tool Co Ltd v Tewson [1972] ICR 501, to the extent that it confined loss to pecuniary loss, was wrongly decided. Parliamentary inaction over a longstanding interpretation may be relevant context, but it cannot give an erroneous construction the force of law.
4. Assessment. Not every upset caused by unfair dismissal attracts compensation. The claimant must prove a real injury. Tribunals are capable of assessing relevant medical or expert evidence. For compensation at large, factual findings explaining the injury, together with an indication of the valuation scale, will ordinarily provide sufficient reasons. The £10,000 award was not excessive and was adequately explained by reference to the seriousness of the treatment and the Vento scale.

The court proposed granting leave to appeal to the House of Lords if requested, recognising the continuing uncertainty.

1. Court of Appeal (Civil Division) — Appeal allowed; the employment tribunal’s award for non-economic loss was restored: [2004] EWCA Civ 84.
2. Employment Appeal Tribunal — The economic compensation issue was remitted to a fresh employment tribunal. The £10,000 award for non-economic loss was disallowed.
3. Employment Tribunal — Constructive and unfair dismissal was found. Economic compensation was awarded subject to the statutory cap, together with £10,000 for non-economic loss.